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Problem 1 (22 marks) Bea's Bikes Limited is an all-equity firm that has an EBIT of \\( \\$ 450,000 \\). EBIT is expected to remain at this level forever. The firm pays all it's earnings as dividends to shareholders (ie., no growth), has a corporate tax rate of \40, an un-levered beta of 0.9 , and 92,656 common shares issued and outstanding. In the market, you observe that Government T-bills are being sold to yield \4 and the \\( \\mathrm{S} \\& \\mathrm{P} / \\mathrm{TSX} \\) Composite Index is expected to yield 10\\%. Assuming a world of taxes and a cost for the risk of default, a) Calculate the value of the firm. (2 marks) b) Calculate the WACC for the firm. ( 2 marks) c) What is the value (price) of a share in the company and what is the EPS? (4 marks) d) What is the value of the firm if the firm issues \\( \\$ 600,000 \\) of bonds at a coupon rate of \7.5 ? The beta for the equity of the leveraged firm is 1.02 . ( 4 marks) e) What is the WACC for the firm with its new capital structure? (2 marks) f) What is the value of the firm if the firm issues \\( \\$ 1,000,000 \\) of bonds at a coupon rate of \9 ? The beta for the equity of the leveraged firm is 1.50 . (4 marks) g) What is the WACC for the firm with its new capital structure? (2 marks) h) Based on your calculations above, what is the optimal debt level? Explain briefly. (2 marks)